market participants are "leaning against the wind." For simplicity, we define momentum as the prior year's total return. Once again, we form long/short portfolios in global equity, bond, and currency markets, long the highest third based on prior year return, and short the lowest third based on the same measure. We show these results in Table 25.1. As before, the momentum effect is robust across countries in all three asset classes, as well as within countries' stock markets. The statistical significance of the momentum factors is even stronger than the valuation factors. In addition, the momentum effect across country equity markets is almost twice that within country equity markets, as measured by their relative information ratios. In this case, the information coefficient for momentum in country selection is more than 40 times greater than in stock selection! Here, let us interject the importance of diversification. Both valuation and momentum measures predict future asset returns, and neither is a complete story by itself. It stands to reason that an even better approach would use both of these variables. In fact, diversification across investment themes is exceedingly powerful in GTAA. To take just one example, consider a global equity country-selection strategy that equally weights the B/P and one-year return strategies. As shown in Figure 25.2, the combined strategy exhibits similar volatility to the single-measure strategies, yet it generates cumulative excess returns over our 22-year period that are three times higher than the momentum portfolio alone. While we reviewed two simple forecasting measures, there exist a number of additional intuitive investment themes that forecast asset class and country returns, and an exceptionally large universe of specific forecasting measures within each of !/P + 1-Year Momentum 1-Year Momentum 0.1 1980 1961 19S2 1983 1984 1985 19GB 19G7 19GG 19G9 1990 1991 1992 1993 1994 1995 199G 1997 199G 1999 2000 2001 FIGURE 25.2 Cumulative Excess Return on Global Equity Country Long/Short Portfolios